The World Trade Organization Ruling Against the Reformulated Gasoline Regulations of the U.S. Clean Air Act

The WTO ruling provides a real life example of the problems raised during the contentious WTO approval battle by WTO opponents across the political spectrum.

The World Trade Organization was established 1/1/95 under the terms of the GATT Uruguay Round. In its outcome, tone, and reasoning, the first ruling of the World Trade Organization against U.S. clean air rules provides a real life example of the WTO's threat to environmental and health protections, democratic policy making and national sovereignty. In this case, three unaccountable trade bureaucrats at the WTO's Geneva headquarters second-guessed U.S. policy makers. The tribunal declared that the means the U.S. employed to implement public health improvements in U.S. air quality under the Clean Air Act were not acceptable under WTO rules. The WTO requires " each Member ensure the conformity of its laws, regulations and administrative procedures" WTO rules. (Agreement Establishing the WTO, Article XVI-4.) Beyond a limited internal appeal to a WTO review panel, the U.S. faces only two undesirable choices: change the rule or pay $150 million in trade sanctions annually. It is the WTO that must be changed, not the U.S. policy.

The ruling illustrates WTO's curtailment of U.S. policy-makers to implement our laws.

This WTO ruling would strip the U.S. government of some basic, practical enforcement tools: the ability to demand certain data from foreign producers about their products and to regulate the producer of a target product. The WTO declares the myriad enforcement and compliance issues that inevitably shape laws and regulations are irrelevant. The tribunal's report states: The WTO "does not allow less favorable treatment dependent on the characteristics of the producer and the nature of the data held by it." (Panel Opinion, p. 35.) This limitation calls into question how the U.S. can enforce any domestic law that requires provision of data for all producers -- that is domestic and foreign producers -- to ensure compliance. This limitation is an extension of the 1994 GATT ruling against provisions of the U.S. Corporate Average Fuel Economy standards (CAFE) in which a tribunal held that the U.S. could not distinguish between specific automobiles on the basis of the producer's average fuel economy even when a law was facially nondiscriminatory. The GATT was an international trade contract that preceded the WTO.

The ruling demonstrates the WTO's threat to popular democracy, national sovereignty.

This case is a classic example of the WTO's democracy threat because the losing rule had withstood all challenges available through the U.S. democratic process. The rule's domestic and foreign opponents had lobbied Congress in the Clean Air Act debate, had participated in the rule making, had threatened the resulting rule with a lawsuit and had lobbied Congress to make later changes. Venezuela was represented in the process by the high-powered D.C. law firm of Arnold & Porter. During the extended battle against the rule, the U.S. refineries had available to them the same U.S. democratic procedures -- lobbying, rule making and the courts -- as available to Venezuela. Once these options were exhausted, the U.S. refiners began implementing the law with the expectation that they would amortize the cost over the many years in which all gasoline in the U.S. market would face similar costs. Meanwhile, the Venezuelans were able to go to a different, international jurisdiction without the same due process guarantees and with a different substantive rule of law and successfully attack the rule. The U.S. refineries which had strongly opposed the rule during its creation, but have since spent billions implementing it, are now demanding that the rule continue to be applied to foreign refineries. From a business perspective, they argue, the WTO's sovereignty threat undermines their ability to make business plans.

The WTO ruling limits future use of WTO defenses on natural resources and health.

There are several limited exceptions to WTO rules for certain domestic laws that conserve natural resources or protect human, animal or plant life. This ruling drastically narrowed the exception for measures "relating to the conservation of exhaustible natural resources." This exception had been viewed as more widely applicable. Unlike other GATT exceptions, it does not require a defending party to prove its domestic law is "necessary," a term interpreted in GATT to mean the "least trade restrictive" option regardless of political, economic or other feasibility concerns. This WTO tribunal ignores the WTO rules to conclude the U.S. does not qualify for the exception because it has not proved the rule was "necessary" for conservation. As well, the tribunal applies a very strict "necessary" test in relation to the exception for measures "necessary to protect the health and life of humans, plants and animals." The tribunal describes the least trade restrictive test in a manner that makes it logically impossible to prove: a defending party must prove the negative, that somewhere, somehow, a less trade restrictive measure does not exist.

If implemented, the ruling would result in dirtier U.S. air quality.

The result of U.S. implementation of the WTO ruling would be dirtier air. Implementation would allow the $150 million annually in Venezuelan gasoline too dirty to now enter into U.S. markets. Interestingly, in the years during which the current rule has been in force, Venezuelan imports of gasoline to the U.S have increased. If Venezuela were excused from meeting the reformulated gasoline standard, an additional $150 million annually of gasoline would be allowed into the U.S., which is more highly contaminated with polluting elements called "aromatics."

The WTO's secretive tribunal second guessed the best way to implement U.S. policy.

The ruling vividly demonstrates what occurs when the WTO authorizes foreign bureaucrats with no stake in promoting the best interests of the U.S. nor expertise in U.S. health or environmental goals to oversee implementation of U.S. domestic policy. The ruling states: "...WTO Members were free to set their own environmental objectives, but they were bound to implement those objectives through measures consistent with its [WTO's} provisions..." WTO Panel Report on Venezuela and Brazil's Challenge of the U.S. reformulated Gasoline Rules, January 16, 1996, p. 46. (Hereinafter "Panel Report.") This is the WTO rule of "say what you want, but do only what we say." The ruling subordinates the many real world difficulties of policy-making to the WTO's imperative of trade uber alles -- putting trade expansion as the primary goal always. Thus, dismissed as unfortunate are the grounds presented by the U.S. as to why the U.S. EPA created this rule. The WTO tribunal engages in second-guessing, noting that the U.S. could have required all refineries to meet the same contamination baseline. However, during the rule's creation through the Administrative Procedure Act's democratic processes, this very option was ruled out. It was determined to have unacceptable costs: causing major disruptions in gasoline production and thus shortages and consumer price hikes. It was argued to be a national security problem. Also, Clean Air Act opponents argued that a uniform standard would necessitate a very long phase-in and a significantly lower standard than what could be achieved using other methods. The tribunal also advised that the U.S. could have allowed every refiner to set its own baseline. Interestingly, U.S. refineries had urged for just that. This method would have kept foreign-refined gasoline entirely out of U.S. markets. Foreign refiners have not been required to keep the detailed data required of U.S. refineries that would have been needed to calculate individual baseline. When EPA suggested that foreign refineries could try to provide data to set their own baseline in a proposed 1994 reformulated gas rule change, Venezuela and Brazil did not support the proposal. They argued the data requirements were too cumbersome. Thus, the EPA used its judgement to craft a compromise allowing some flexibility for refineries with data to set their own baseline. The EPA concluded it could not ensure reliability of foreign data nor did it have foreign police powers to sanctions falsified foreign data. Thus, U.S. refineries with the needed data could set individual baselines. U.S. refineries that had not been operating for six months (and thus did not have good data) and foreign refineries were given a statutory contamination level. That level was the actual average of all of the refineries for which data were available, ensuring that foreign refiners as a group were treated identically to domestic refineriers as a group.

The U.S. has only 3 options to the WTO ruling: Appeal to an internal WTO review board, change the rule or pay $150 million annually to Venezuela in trade sanctions.

The WTO, not the U.S. policy needs to be changed. Although appeals are limited to an internal review board, the U.S. must appeal this case because it establishes dangerous precedents which could be used to attack other U.S. conservation and environmental laws. As well, the U.S. would be setting a bad precedent in simply accepting this far ranging ruling which is packed with extraneous, ad hoc rule-making on issues that this case does not raise and that could be used against a wide range of other domestic policies far beyond environmental and health issues. As a policy matter, the U.S. must draw a line: international trade law cannot be made by secretive panels on an ad hoc basis. This ruling bristles with out of context quotes pulled from past GATT cases used to substantiate points the panel seems to have created out of whole cloth.

In trying to claim some victory, the U.S. trade office has bragged that it won a real victory in getting the WTO to consider clean air as an exhaustible natural resource!

The fact that the Clinton Administration declared victory in the WTO's decision to consider air a natural resource is a devastating indictment of the WTO's antiquated view of the world. It seems inconceivable that the U.S. would have agreed to submit its domestic health and environmental laws to review by such a backwards organization. The notion that any international agency would question whether clean air is a renewable natural resource would be comical, except the WTO has the power of trade sanctions to push its backwards notions of the world into nations' domestic policies.

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